Will the continued decline in CD sales finally force the music industry to embrace the new portable "on-demand" lifestyle and figure out new ways to digitally distribute content?.Bob Lefsetz, author of "The Lefsetz Letter," a music business analysis blog, makes some bold predictions for the music industry in 2007. Claiming to captivate "... readers from Steven Tyler to Rick Nielsen to Bryan Adams to Quincy Jones to EVERYBODY who’s in the music business," Bob Lefsetz blog, "The Lefsetz Letter," routinely comments on "...the issues that are at the core of the music business: downloading, copy protection, pricing and the music itself." In his latest posting, the former entertainment business attorney, majordomo of Sanctuary Music’s American division, and consultant to major music labels, makes some interesting predictions for the music biz in 2007. His extensive knowledge of the music biz inside and out makes his predictions all the more poignant and worth acknowledging. The predictions number some 31 in total, many of which are unrelated to the world of P2P and file-sharing, which is of course my focus here on ZeroPaid The one prediction, though admittedly sounding obvious and like a bit of a no-brainer on its surface, that really resonates with me is his prediction for the future of CD sales and digital music distribution. He writes: CD sales will continue to tankSometime in the next twelve to eighteen months CD sales are going to decline so precipitously as to cause the major labels to rethink their digital strategy. With the iTunes Store no replacement for discs, they’ll be forced to authorize a new method of distribution, just to maintain their bottom lines.You’ve seen this movie. With film. For fifteen years seers predicted digital would eclipse the old format. This finally happened a year ago, when Konica Minolta exited the camera business and Nikon essentially stopped making film cameras. Same thing is going to happen in the music business, with CDs, it’s just a matter of when. The most interesting point is how the usage of music will change. People shoot MANY MORE digital photos than they ever did film ones. People will own MUCH more music than they did in the physical era. This is good.The CD, the last bastion of popular physical music media, is no longer the mainstay that it was for the music industry. Faced with the prospect that declining CD sales is a foregone conclusion, and that it will only worsen as the years go by, the music industry must finally come to grips with this reality sooner or later. They have seemingly faced this crossroads since the birth of Napster some 8 years ago but, never has the situation been more dire or alarming for the music industry.
Secondly, who even carries around CDs anymore? The old days of a CD wallet are long gone, and even the famous home CD tower is relegated to a faint memory for most. Is there anything more outdated, perhaps even borderline creepy, as is a CD tower? CDs have become become almost as much of an oddity as cassette tapes have. If you see a guy on the street walking around with an old-school Walkman type portable cassette player in hand you have to wonder whether he's all there mentally or not. Portable CD players are fast becoming the same sort of outdated music device. Even the type that play MP3 data discs are cumbersome and unwieldy as you still have to deal with CD-Rs. The world is increasingly going digital, from movies, to pictures, to music. The storage size, convenience, and quality make it the choice of the future. Physical media just can't keep up with fast paced 21st century livin'. It's no longer compatible with our portable, on-demand lifestyles.
From the new iPod DJs to the world of podcasting, digital music has revolutionized the music listening experience. It then begs the question, that if CD sales are the music industries proverbial bread and butter, then what on earth will they do as the losses mount and the number of sales continues to decrease? It's been noted that iTunes annual sales of about $1 billion USD still don't compare to the $2.5 billion USD loss in CD sales in the United States alone. For the mathematically challenged, that's more than $1.5 billion USD that its losing in music sales annually. So, if CD sales and iTunes alone aren't cutting it, and I don't see the music industry cutting its expenses anytime soon, what will it do to survive? It will have to come up with a new method of distribution as Lefsetz notes, it has no choice. Its battalion of lawyers and its reign of legal terror on P2P and file-sharing software users worldwide is losing the battle against music piracy, and even legal methods of digital music distribution are coming up short. What the new method will be is uncertain but, the music industry had better think fast. Maybe dissolving its legal team and hiring some productive and knowledgeable people who can offer it some "outside of the box" type thinking is in order. Its time to disband the unit responsible for fighting a losing battle against the technological progress of mankind of all things and embrace the future however painful that may be. A good start would be to realize that trying to charge 20 bucks for an outdated form of media with maybe only 2 good songs on it is probably a bad business idea, "bad" being the understatement of the decade. The music industry need to understand that people have a wide variety of media available to them with a simple click of the mouse. They are able to listen and watch whatever they want wherever they want at any time. People don't want to spend the time or effort to locate a physical store, travel there, and then spend more money to boot on a product than they would otherwise. This ia another point to be made, that considering the dramatically reduced costs of distribution and marketing for digital music wouldn't that mean more money in the hands of music labels? Or is the price of a CD so inflated that any other business model undoes all the years its bottom line grew accustomed to artificially inflated prices? Is it a true "loss" in legitimate revenue or merely a loss from charging more than what the market would otherwise bear if it had competing forms of distribution?
Am I wrong? The chart speaks for itself. You get another 75 cents if you no longer have the need for "pressing album and printing booklet." There's a tripling of the labels profits again right there, and we haven't even begun to discuss "Marketing and Promotion" and the other associated CD production costs. Wal-Mart and Target long ago began hawking popular CDs for around $9.99 a pop, also contributing to the demise of Tower Records and other competing music retailers, and in the meantime proving that the market will always seek out alternative forms of distribution. Capitalism always wins in the end, not a sort of "socialistic" system in which prices are predetermined by the creator despite their worth to the consumer.
The day when music labels will have to fully embrace digital distribution is fast approaching. As the losses in CD sales mount and profits shrink, They will finally be forced to radically alter its strategy for the way that it both markets and delivers music content to consumers. When or how it will occur is anybody's guess but, I do I have a feeling that this is the year it finally realizes that it can't fight technology.
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First of all, Tower Records and many other brick-and-mortar music retailers have already gone belly up. I can't think of a single place where I could go to purchase a physical CD in my area, San Diego, other than a quirky independent record store down the street. 
Portable music players give uses the ability to enjoy a vast selection of music without the need for bulky discs and devices, allowing them to enjoy their entire music collection wherever and whenever they desire. 
I just hope the movie industry also comes up with some way to legally watch first run films without having to go to a theater and sit in a crowd of people that sometimes can be a distraction.